QuickHit: The Great Decoupling and the Future of US-China Relations (Part 2)
This is Part 2 of the first ever QuickHit #CageMatch with political-economic advisor Albert Marko and China expert Christopher Balding on the great decoupling of US and China. The second part of this is on the Belt And Road Initiative and the answer that the US may have to the BRI. We also talked about the corporate activities — are the US and China targeting corporates? How does that work and how would that play within the environment of decoupling.
For the first part, we’ve covered the US foreign policy, looking at Latin America, Africa, and parts of Asia. We looked at US-China trade and a number of other aspects around the US-China relationship.
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This QuickHit episode was recorded on October 14, 2020.
TN: Now let’s let’s move along a little bit more into economics and talk about the Belt and Road Initiative, which something that I actually worked on for about a year and a half. There’s been some talk in the last few months about the anglosphere and will the West have an answer to the BRI. Does the US need a response to the BRI as a government initiative and if so, do you think they can do it? That question is from @Sw33tYams.
CB: Just as rappers get shown to the VIP room, if you’re a country and you are offering goodies, you’re gonna get shown to the VIP room in whatever country you go to. That doesn’t mean it has to be the Trump and air initiative. We do need to think about and we should absolutely put effort into how can the US provide positive things to countries.
Why don’t we set up an office that says, I have a company in China that makes XYZ product and they want to move out of China. We have a database of where to go. I know bankers in Vietnam that we’re like, “hey we’re just getting slammed. Why doesn’t the US have an office of infrastructure for emerging markets like Vietnam to help get migrating Chinese companies, those types of goodies, even in a lot of different forms it could take, are going to open a lot more doors than just saying it’s the right thing to do.
AM: I agree. But it’s also gonna need a little bit of help from our partners specifically Australia, the UK plus Japan. Basically five I’s plus Japan. It’s going to need shared cost. Supply chains have to move. It’s going to take a little while. It’s going to take a little bit effort from everybody.
TN: So it’s basically a government kind of somewhat directed but not necessarily directly involved. What you’re saying is Americans will take a a little easier hand than the Chinese kind of very direct hand in say
these multilateral or multi-country activities. Is that fair to say?
CB: I can give one example I was told about and this is something I’m surprised hasn’t gotten more attention. The Commerce Department apparently has a tariff waiver program where if you say, “look, we have this plant in China. It’s facing tariffs. Here’s our 180-day plan to get to move our production to Vietnam, Sri Lanka, Africa wherever.” The Commerce Department will give you a waiver for, whatever time period if you give them a plan. That’s the kind of stuff that should be more publicized and the US government is taking an active role to partner with business to say, “you take the lead and if you’re doing it, we’ll help you.”
TN: Let me throw you the next question, Albert. This is from @Ellis_Greenwood. How long will it take the US to decouple from China? So if we assume what Chris just talked about with some of the say Commerce Department activities, these other things, does the US really wanted to decouple from China fully and if so, how long will it take to get either to that level or to say a desired level that that US companies would want to?
AM: A desired level is the right term. We’re not going to fully decouple from China. That’s just absurd. When they’re talking about moving supply chains, I’ve heard all sorts of 15, 20 years to one year and it actually depends on each sector. It’s a lot easier to move a software gaming company rather than a pharmaceutical manufacturing company. It can take anywhere from one year to ten to fifteen years.
TN: What do you think about that, Chris?
CB: I think that’s generally accurate. A lot of the stuff that China was known for over the years, like let’s say low-wage manufacturing, assembly, that type of stuff… I mean Apple set up, a plant in India, which can make iPhones in about 18 months. As Albert pointed out, people think of decoupling as there’s not going to be trade between the US and China. I think what you’re really seeing is this move to bipolar supply chain worlds especially in tech. So there’s going to be a China-specific manufacturing world for tech stuff and a non-China because, you can already see the US government and other governments and even companies saying, “hey, your tech is not been touched by China.”
TN: Frankly, I believe that’s what China has wanted all along is their own Chinese ecosystem and then a rest of world ecosystem so they can control that technology and the messaging over that technology. That’s what they had 20 years ago, and there’s been the things overlapping for the last 10 years and I believe that deep down, they really want a separation of those things.
This is @candideXXI, “what will be the political and economic pressures outcomes produced by the ending of Chinese investment and the debt expansionary cycle,” which is an interesting question but maybe going to one or two things. Underlying that question is, is that expected to happen? A lot of people have this question on their brain but I don’t necessarily see that happening in the next three to five years. These things tend to go a lot longer than many people assume.
CB: Let’s assume that China went to 0% debt growth right now. Honestly, China would be in flames by the end of the day. It would explode. Xi would be lynched by the end of the day. The number that I saw and it’s a staggering number, is debt to GDP in China this year is going to increase by upwards of 30%. So it’s going to go from 300% to 330% in one year. That’s a staggering number. I don’t see they’re going to keep this going as long as possible. For them to get this under control is going to be at least a 10, 20 year cycle at best. And in all likelihood, they’re headed for North Korean financial system with Japanese debt. That’s the only logical outcome. Because if they were to open up the capital markets, the RMB would drop 50% easy.
TN: So what you’re saying is, there’s a possibility that CNY could be a global currency?
CB: That’s exactly what I’m saying, yes. Exactly what I’m saying.
AM: Yeah I agree with Chris here. China’s well within the Euro Dollar system. They need dollars. They can’t get away from Dollars. They need it for their debt. They multiply it out to issue more Renmimbis out to the emerging markets. They’re not leaving and they’re not getting out of the system.
TN: Let’s take it more into the corporate realm as well. When we look at like Huawei and Tiktok and some of the Chinese companies that have a large international presence, given the dynamics at home, if the US continues to cut off these companies and some of their crucial activities overseas, how does that bend back onto China? How dire is it? Is it not a big deal or is it pretty dire not just in terms of acquiring technology but in terms of actually making money and keeping the home markets floating?
AM: That’s the name of the game is making money for them. They need dollars from overseas desperately. Without that, their entire financial system implodes. They go out to Africa and then they loan out Renminbis and they expect money paid back in dollars at all times. So without the dollar, they’re just buying time.
CB: Especially in the tech sector, these are guys that maybe have been abroad for a fair amount of time. They want to emulate the Googles. They want to be international. They think of themselves as cosmopolitan even if they grew up in the system. And so, even though they might be pro-China, which is different than like pro-CCP, they want to be a part of that global tech scene. To have those limitations on them is a constraint that they don’t necessarily like. But that’s the reality of the system that they find themselves in.
TN: So will they change their behaviors to align with the constraints outlined by the US or will they remain true to what the CCP tells them to do and their business will suffer internationally?
CB: Business will suffer internationally because the reality is, as a Chinese business, you can’t get away from that. As soon as Jack Ma says I’m gonna obey the SEC and file this type of audit, they get blown up in China.
AM: They can walk a tight rope until they absolutely get pressured by the Chinese government and then they have to fall in line. There’s no other choice for them.
TN: We’ve seen more Chinese IPOs in the four years of Trump than we saw under the eight years of Obama. First of all, why is that? Are they just trying to cash in and get dollars into their companies or is there some other reason? Is it possible to continue that pace?
AM: I think they’re just taking advantage of the market and being able to cash in and cash out as fast as they possibly can. Do I think it’s sustainable? Absolutely not. This market’s overbought and eventually there’ll be a correction and on top of that I think that the US government needs to have some reasonable accounting standards for Chinese companies that refuse to open their books for transparency. It boggles my mind. At this point, why should I just go to China, buy a company and list it on the NASDAQ for some absurd amount of money. There’s nothing saying that I need to open my books. It’s absolutely crazy.
CB: This is one of the most frustrating arguments by the China apologists because when you make the same argument that Google, Goldman whoever is not subject to the SEC or US jurisdiction on US financial markets, you make that argument, then I will entertain your argument about Chinese companies. Until then, it’s nonsensical.
TN: Okay. So let me just sum this up. China is the biggest US foreign policy issue. China is in an untenable position of having their companies locked down or some of their companies locked down by the US. They have a shortage of dollars. They have unsustainable debt and if the current US policies continue, at least Albert thinks that Chinese leadership is in peril. So, what glass half full view am I not seeing?
CB: This is in a way very predictable in the sense that they sit down in November, December and they say, “Okay this is our target for 2021” whatever it is. And because you can see that those numbers are almost so stunningly predictable and what’s amazing is they have a very good idea of what their leakages are going to be. That money that gets leaked out in Macau gaming chips or Bitcoin and all that other good stuff, they know what they have to hit. My favorite thing of all this is that almost nobody knows that they’re already rationing US dollars. Most banks in China have the one-to-one rule that you have to bring in a dollar to send out a dollar. As long as they can continue to balance those books through, it can keep up for a while.
AM: I’m at a loss for words almost on that one. For the Chinese, you would hope that they understand how bipolar systems work and understanding the Apple versus Microsoft component as like let the one guy be big and you fill in the gaps and everybody be copacetic. I don’t know if I can buy that for very long. But
that’s my only hope is Xi, if Trump is elected, which I am speculating that he is, comes to this realization and says, “let’s tone down the pressure. Let’s fulfill the Phase One Deal, Phase Two Deal” whatever they want to go into. Make inroads and just ratchet down the tensions.
TN: Last question guys. Albert, I know you’ve done a lot of forecasting for the presidential election. What do you think is going to happen? You have some really interesting views and I’d love to hear why and Chris also as he’s talking, it’s your first time to be back here. What are some of your observations and expectations as well.
AM: I know we’re seeing all sorts of polling numbers that are just eye-popping and just I cannot believe publishers actually put this out to print. 15 points for Biden. 11 points for Biden.
CB: Just today, I actually saw this poll saying Biden up 17.
AM: It boggles my mind how these people just either they miss statistics class or just don’t know how to add. But for Biden to be up 17 points, you would have to assume the Democrats come out in some kind of record 80 turnout and on top of that have the republicans, 15 of them either not show up or vote for Biden.
TN: But even Reagan’s 84 blowout wasn’t a 17-point win, was it?
AM: No. This is what’s boggling to me. I just don’t understand it.
We know what California is going to do. We know what New York’s going to do. We just toss those aside. If you look at Florida, North Carolina, Pennsylvania, Michigan, Wisconsin and Arizona, those are the states that you really have to look at and in almost every single state, the Republicans have gained hundreds of thousands of new registrations. And even in the polling that’s done out there, there’s a few pieces of data that 96 or 94 of Republicans have an approval of Donald Trump. How do you get to 17 point lead, when 94% of Republicans support Donald Trump. That’s just unbelievable to me. The Economist has been my favorite lately of the 99.9% victory for Joe Biden over Donald Trump.
These are just silly numbers people throw out there. Coming out of lockdowns, they’re doing 100 phone polling so they have no opportunity to go out to the public and see who they’re talking to. And study after study has shown that Republican voters have been not just shy vote, but actually spiteful of the pollsters and purposely saying that they’re going to vote for Biden. That’s how you get to these 17 point numbers.
CB: I try to stay away from politics as much as possible especially on China and stuff like that because whether it is Trump or Biden, I see what we’re in with China as a 20 to 40-year type of challenge. So at some point, there’s going to be Republicans, at some point there’s going to be Democrats. Just from a social perspective and Tony I think you can identify with this. Man, America’s crazy.
TN: Democracy is messy, right?
CB: I’m a live and let live kind of guy. So if you’re a Democrat, if you’re a Republican, if you’re a Green or a Libertarian, I don’t really care. We can still sit down and smoke a cigar. And I think the thing that just amazes me is America just seems angry and it seemed really angry for a long time.
We can all talk about Trump, but both parties can point to things that the others have done that is unethical, that is abnormal. We need to be better citizens to each other. We need to accept losses that, it’s not going to be our time all the time. The political golden rule is don’t advocate a policy that you don’t want used against you.
AM: I attribute the hate that we’re seeing now, the polarization, squarely on the weaponization of social media. Completely. Because we can sit there and put out a viral post of someone, take a phrase taken out of context and making that person look like just a demonic figure and then dox the guy, show him his address and have 15 people show up to the house with pitchforks and and torches. It’s just insane. There’s got to be some kind of accountability on social media by either the government or social media standards themselves.
TN: Social media doesn’t have standards, Albert, because I know you’re both active on social media.
CB: The way I always think about it is, a country or a political party is like a family barbecue. We’ve all gone to those family barbecues and go, “who are these losers that are at this family barbecue?” And if you aren’t going to your own political party or your own country and going, “dang these are some losers I’m hanging out with,” okay I mean, you’re doing it all wrong.
This QuickHit is originally published at https://www.completeintel.com/2020/10/26/quickhit-great-decoupling/.
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